What You Need to Know

For Federal income tax purposes, depending on the type of stock (e.g.
common, REIT, MLP, preferred, etc.), the dividends
you receive could be classified as "qualified"
or "non-qualified."

Which classification applies could affect the income
tax rates that apply to your dividends.

Qualified Dividends

Qualified dividends must be paid by a corporation that is subject to
U.S. corporate income taxes, or by a foreign corporation based in a
country that is eligible for benefits under a U.S. tax treaty. Most dividend stocks, such as
those issued by utilities, banks or other financial institutions, or
firms that make products or sell services, fall into the qualified
category. For those, the your dividend tax rate depends on your ordinary
income tax rate, but tops out at the maximum capital gains rate, which
is 15% or 20%, depending on your tax status.

Ordinary
Income Tax Rate

Qualified Dividend
Income Tax Rate

10%

0%

15%

0%

25%

15%

28%

15%

33%

15%

35%

15%

If your stocks are held in a taxable
account, you report qualified dividends on
Line 9b of IRS Form 1040. If your dividends totaled more than $1,500,
the IRS requires you to detail the payouts on Schedule B.
Click
herefor IRS
dividend filing instructions. If you're stocks are held in a
tax-sheltered account, taxes will not be an issue for qualified
dividends.

Non-Qualified Dividends

Dividends paid by tax-exempt corporations or trusts such as Business
Development Corporations (BDCs), Master Limited Partnerships (MLPs),
Limited Liability Corporations (LLCs), or Real Estate Investment Trusts
(REITs) are considered non-qualified, and may be taxed at ordinary
rates. You report non-qualified dividends on Line 9a of IRS Form
1040.

Business Development Corporations
BDC dividends are mostly taxed at ordinary income tax rates, However,
after the year-end, a BDC may designate a portion of the prior year's
dividends as "return of capital," which may be treated as
a capital gain. Return ofcapital payouts reduce your cost
basis and are not taxable until you sell your
shares, when they are taxed at the appropriate capital gains rate.

Real Estate Investment Trusts
REIT dividends are mostly taxed at ordinary income tax rates. However,
after the year-end, a REIT may designate a portion of its prior year's
payouts as "qualified dividends," which qualify for the maximum 15%
rate. On average, roughly 20% of annual payouts fall into this
category. A REIT may also classify portions of its prior year payouts as
return ofcapital.

Master Limited Partnerships & Limited
Liability Corporations
For income tax purposes, MLPs and LLCs are treated the same. Both
require filing IRS Schedule K1 forms, which are more complicated than
Form 1040s. If they exceed certain limits, portions of dividends
received from MLPs and LLCs could be considered "unrelated income," and
be taxable. For details on MLP and LLC tax considerations,
click here.

Foreign Corporation Dividend Withholding

Many countries withhold a
percentage of dividends paid to residents of foreign countries for
income taxes. However, you can apply for to the U.S. IRS for a refund
(foreign tax credit) for at least a portion of the amount withheld. How
much you'll get back depends on your individual tax status. Here's a
list showing what major countries withhold from U.S. residents.

Country

Country

Argentina

0%

Kuwait

0%

Australia

30%

Luxembourg

15%

Austria

28%

Malaysia

10%

Belgium

30%

Mexico

10%

Bosnia

5%

Netherlands

15%

Brazil

0%

New Zealand

30%

Canada

*15%

Norway

25%

Chile

35%

Oman

0%

China A, B, & C Shares

10%

Peru

4%

China - Red Chips

0%

Philippines

30%

Colombia

5%

Poland

19%

Denmark

27%

Portugal

25%

Egypt

10%

Qatar

0%

Estonia

0%

Russia

15%

Finland

30%

Saudi Arabia

5%

France

30%

Singapore

0%

Germany

26%

South Africa

20%

Greece

15%

South Korea

22%

Hong Kong

0%

Spain

19%

Hungary

0%

Sweden

30%

India

0%

Switzerland

35%

Indonesia

20%

Taiwan

20%

Ireland

20%

U.K. Corps.

0%

Israel

25%

U.K. REITS

20%

Italy

26%

United Arab Em.

0%

Japan

20%

Vietnam

0%

*
Canada does not withhold taxes on Canadian common
stocks held in U.S. IRAs.